Insights

Weekly Market Commentary February 25, 2019

The S&P 500 added another 0.7% to its impressive gains since late December. Optimism about a trade agreement between the U.S. and China continued to support markets.

While trade negotiations between the U.S. and China remain the key focus, a number of other key events and data releases are likely to move markets this week. The U.S. will release its first look at fourth quarter gross domestic product (GDP). President Trump will meet with North Korea’s Kim Jong-un, and China will release key economic data, too.

Key Points for the Week

Investor optimism seems to be washing over the fear investors showed in December.

Important economic data and the risk of disappointment from trade talks pose short-term risks.

Market Analysis

Another positive week. U.S. stocks continue to move higher almost every week. The S&P 500 has only dropped once in the last nine weeks, and it declined 0.2% in the week it was down. The 0.7% increase this week was the third-worst weekly performance since the week prior to Christmas. When a week that rises 0.7% is below average, markets have performed exceptionally well.

The increase in prices reflects the calm in popular risk measures. The VIX, which measures the expected volatility based on options contracts, has dropped below 15. The measure, sometimes referred to as “the investor fear gauge,” is now close to the levels seen at the market highs.

Markets likely won’t continue at this pace much longer, although the recent performance shows the market’s penchant for providing surprises. There are several short-term factors threatening the advance. First, the market is getting close to estimates of fair value after looking cheap during the decline. The sharp recovery has pushed the S&P 500 to within 3.9% of its all-time high. Second, global economic data continue to disappoint, and additional signs of slowing growth would likely pressure markets. Because of the government shutdown, this week will provide the first report for U.S. fourth quarter GDP. Third, market expectations for the U.S.-China trade talks are elevated. Those talks could either hit a significant bump, or the progress may not satisfy elevated expectations.

We are watching these fundamental factors closely. However, our biggest concern is the complacency in the markets and that investors are becoming less cautious as the rally continues. While risk seems to have headed south after Christmas, we expect it to eventually come back.

Fun Story

Two dogs in Lakevillle, Minnesota, were having a “ruff” day recently. The day was so bad, they called the police five times. After the police did a walk around and found no trouble inside or outside the house, they were about to call it quits when the dogs called another 16 times. After tracking down the owners, they realized the dogs had got a hold of the office phone, which was set on emergency-call-only mode.

This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.

S&P 500 INDEX

The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Armstrong Purselley

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